Unmask the corrupt

Do you ever wonder how a corrupt public official manages to shift stolen funds to a luxury resort to build a beachfront getaway? Or how the son of the president of one of the world’s most corrupt countries can make use of stolen cash to buy a house in Malibu? It’s actually quite easy. The first step is to find a country where lax corporate registration rules allow a person to set up a secret company.

These places are called “secrecy jurisdictions” and they exist all over the world from the Cayman Islands in the Caribbean to the U.S. state of Delaware.

Once a corporate home has been chosen, a pack of eager facilitators including bankers, lawyers, accountants and others can quickly and easily set up secret companies and bank accounts. Thus begins the oft-used process to move illicit cash flows around the world.

Shell companies, secrecy jurisdictions and opaque corporate ownership structures allow the corrupt to hide their ill-gotten wealth. At Transparency International, we say it’s time for governments to unmask the corrupt and make it mandatory to reveal who really benefits from every company registered on their soil.

Today too many leading economies don’t require or record information about who really owns or controls companies registered in their country, making it easier for the corrupt, terrorists or organised criminals to hide their stolen money.

That is why we are asking the members of the G20 countries meeting in Australia to make it impossible for the corrupt to hide their identity behind secret companies.

G20 countries need to make it mandatory for business registers to include information about the ultimate “beneficial owner” of any asset and to make that information public. If that happens, law enforcement and the public will know who really benefits from every company registered on their soil.

This will make a difference in the fight against corruption. A World Bank report said that among the 213 cases of grand corruption it investigated over the last 30 years, more than 70 per cent showed ownership of the stolen funds had been disguised through the misuse of corporate entities, half of which were anonymous shell companies.

What needs to be done

Last year the UK government committed to introduce legislation to ensure that beneficial ownership information is incorporated into public registries. France passed a law to incorporate the beneficial ownership information of trusts into public registries.

More needs to be done. Corruption is a transnational problem that connects bribery and stolen assets to fancy resorts and financial centres around the world, through a maze of secret mechanisms. The G20 can raise the game by showing global leadership and pushing its members to be more transparent, share information on illicit flows and work together to unmask the corrupt.

Transparency International recommends:

• Governments should require information about who ultimately owns, controls or benefits from companies to be included in central business registries and make them public and searchable.
• As an immediate measure, governments must require companies bidding for government contracts to disclose who owns, controls or benefits from the company. This helps ensure corrupt officials are not awarding themselves or their friends government contracts without proper scrutiny.
• Countries with direct influence over secrecy jurisdictions should ensure that they establish public registers including beneficial ownership information.
• Bankers, financial institutions, lawyers and accountants must ensure they are not complicit in corrupt acts by undertaking full due diligence measures. Real estate agents, casinos and other such professions where high-value goods and services are bought must also ensure they do comprehensive background checks and due diligence on the people and companies they work with.

Preventing luxury lifestyles derived from corruption

Alongside efforts to stop illicit flows, more work needs to be done on the denial of entry for the corrupt to keep them from traveling freely across borders to enjoy luxury lifestyles funded by theft and corruption.

Furthermore, governments should make sure that luxury retailers are not handling corrupt money by enforcing legislation requiring proper checks and due diligence on their customers.

It may be easy for a luxury car dealer to turn a blind eye and accept cash for a luxury car from someone who on paper should not be able to afford one. But it should be against the law. Corruption is not a victimless crime. An investigation might show that the money used to buy the luxury automobile should have been used to buy medicines to save lives.

Resources

For more on beneficial ownership, secrecy jurisdictions and denial of entry, please see our policy brief, 'Ending secrecy to end impunity: tracing the beneficial owner'

For more on denial of entry, please see our policy brief, 'Leaving the corrupt at the door: from denial of entry to passport sales'

For more on luxury goods retailers, please see our policy brief, 'Regulating luxury investments: what dirty money can't buy'